Best Execution

What is Best Execution?

Best execution monitoring is the process of evaluating and ensuring that investment firms are executing client orders on the best available terms. It is a key regulatory requirement under MiFID II.

What are the Best Execution Factors that need to be Monitored?

  1. Price of Instrument: Firms should assess the prices available across different execution venues to ensure they are obtaining competitive quotes.
  2. Cost: This includes all costs associated with the execution of orders, such as commissions and fees, which should be compared to ensure minimal expense for clients.
  3. Speed of Execution: The time taken to execute orders is important, as delays can affect the price and overall outcome for clients.
  4. Likelihood of Execution and Settlement: Firms must evaluate the conditions under which orders are likely to be executed and settled, ensuring that they are not placing orders in venues where execution is unlikely, while assessing the reliability of the execution venues to settle the transactions successfully.
  5. Size & Nature of Order: The size and type of the order can influence execution quality, and firms should monitor how different sizes are handled. Firms should also consider the characteristics of the market for the security being traded which may impact the execution quality.
  6. Other Relevant Factors: Any other unique characteristics that may affect the execution of orders should also be taken into account.

How can Investment Firms perform Best Execution Monitoring?

Investment firms are required to implement systematic monitoring processes to ensure compliance with best execution obligations:

  • Regular Reviews: Firms must regularly review their execution policy and implement a system to demonstrate that they are upholding their execution policy.
  • Transaction Sampling: Instead of monitoring every transaction, firms can use sampling methods to assess execution quality.
  • Performance Benchmarking: Firms should compare their execution results against market data and benchmarks to identify areas for improvement and ensure that they are consistently achieving the best outcomes for clients.
  • Compliance Oversight: A compliance monitoring process should be in place to periodically review transactions and ascertain whether the best possible results were achieved. This includes investigating instances where better prices were available at the time of execution.

By diligently monitoring these factors and processes, investment firms can ensure they are meeting their best execution obligations and protecting their clients’ interests.

How can Finmatek help you?

  • Tailored Solutions: Finmatek’s platform is flexible, enabling clients to set up specific checks that align with their unique Best Execution policies and practices, ensuring that monitoring is relevant and effective across all asset classes.
  • Expert Support: The company provides dedicated support and training throughout the on-boarding process, ensuring that key personnel are well-equipped to manage the system and understand the regulatory landscape
  • Integrated Dashboard: Clients benefit from a web-based integrated dashboard that provides a holistic view of execution quality  and easy access to critical metrics like price, costs, speed, likelihood of execution and 3rd party price comparison.
  • Record-Keeping: Efficient record keeping for all comparisons, tests & transactions for future reference. This functionality is beneficial not only for providing regulators with evidence of monitoring but also for maintaining comprehensive records.